Britain's financial has watchdog set out new rules to cap the sky-high interest rates offered by payday lenders, bringing down the cost of short-term loans criticised for causing hardship and misery among borrowers.

The Financial Conduct Authority said that from January 2015 the interest and fees on new payday loans must not exceed 0.8% per day of the amount borrowed.

Fixed default fees cannot exceed £15 and the overall cost of a payday loan must not exceed the amount borrowed.

Payday lenders, which are designed to tide borrowers over until payday, have been accused of charging exorbitant fees and tipping households into a spiral of debt.